Indonesia Market Selloff Shows Perils of Relying on Foreign Funding

A steep recent slide in Indonesia’s stock markets and currency is rooted in heavy foreign ownership of the country’s government bonds—something officials here have been trying to change. The Indonesian stock market has slid more than 7% in two weeks, while the rupiah has shed 1.4% since mid-April as global investors have pulled funds from emerging markets. The selloff is partly because of ripple effects from Indonesia’s local-currency bond market, which until recently has been a beneficiary of investors’ yearslong search for yield, The Wall Street Journal reported. Since mid-April, roughly $2 billion of foreign money has flowed out of rupiah-denominated bonds, part of a global trend for capital to return to U.S. markets, where bond yields and the dollar have been rising. The yield on Indonesia’s benchmark 10-year government bond has risen to 7.054% Monday from 6.596% on April 16, according to Thomson Reuters, while the cost of insuring Indonesian government debt has jumped, with the price of five-year credit-default swaps up 17% in the past month, according to IHS Markit. Read more. (Subscription required.)
Location